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OM Chapter 1 Notes

Operations Management (OM) involves transforming inputs into outputs to create value in goods and services, and is one of the three core functions of any organization alongside marketing and finance/accounting. The chapter outlines the significance of productivity, the challenges in measuring it, especially in the service sector, and the critical factors influencing productivity improvement, including labor, capital, and management. Current challenges in OM include globalization, supply-chain partnerships, sustainability, and rapid product development.

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Ahmad Bani Younes
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30 views5 pages

OM Chapter 1 Notes

Operations Management (OM) involves transforming inputs into outputs to create value in goods and services, and is one of the three core functions of any organization alongside marketing and finance/accounting. The chapter outlines the significance of productivity, the challenges in measuring it, especially in the service sector, and the critical factors influencing productivity improvement, including labor, capital, and management. Current challenges in OM include globalization, supply-chain partnerships, sustainability, and rapid product development.

Uploaded by

Ahmad Bani Younes
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Operations Management

Chapter 1
 Production: Production is the creation of goods and services.
 Operations Management (OM): Operations Management (OM) is
the set of activities that creates value in the form of goods and
services by transforming inputs into outputs.
 All organizations perform three functions:
1)Marketing 2)Production/operations 3)finance/accounting
1)Marketing, which generates the demand, or at least takes the order
for a product or service (nothing happens until there is a sale).
2)Production/operations, which creates, produces, and delivers the
product.
3)Finance/accounting, which tracks how well the organization is doing,
pays the bills, and collects the money.

 Supply chain: a global network of organizations and activities that


supplies a firm with goods and services.

 We study OM for four reasons:


1)OM is one of the three major functions of any organization, and it
is integrally related to all the other business functions.
2)We study OM because we want to know how goods and services
are produced.
3)We study OM to understand what operations managers do.
4)We study OM because it is such a costly part of an organization.
 Good OM managers are scarce and, as a result, career
opportunities and pay are excellent.
 What operations managers do? All good managers performs
the basic functions of the management process, the
management process consists of planning, organizing, staffing,
leading, and controlling.
 There are 10 strategic OM decisions:
1)Design of goods and services. 2)managing quality.
3)process strategy. 4)location strategies.
5)layout strategies. 6)human resources.
7)supply-chain management. 8)inventory management.
9)scheduling. 10)maintenance.
 Services: economic activities that typically produce an intangible
product (such as education, entertainment, lodging, government,
financial, and health services).
 Services are especially important because almost 80% of all jobs
are in the service firms.
 Service Sector: the segment of the economy that includes trade,
financial, lodging, educational, legal, medical, and other
professional occupations.
 Productivity: productivity is the ratio of outputs (goods and
services) divided by the inputs (resources, such as labor and
capital).
 Why is productivity important? Because it determines our
standard of living.
 An effective feedback loop evaluates performance against a
strategy or a standard, it also evaluates customer satisfaction and
sends signals to managers controlling the inputs and
transformation process.
𝑈𝑛𝑖𝑡𝑠 𝑝𝑟𝑜𝑑𝑢𝑐𝑒𝑑
 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 =
𝑖𝑛𝑝𝑢𝑡 𝑢𝑠𝑒𝑑
 Single-factor productivity: indicates the ratio of goods and
services produced (outputs) to one resource (input).

𝑢𝑛𝑖𝑡𝑠 𝑝𝑟𝑜𝑑𝑢𝑐𝑒𝑑
 𝑆𝑖𝑛𝑔𝑒𝑙 − 𝑓𝑎𝑐𝑡𝑜𝑟 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 =
𝑙𝑎𝑏𝑜𝑟−ℎ𝑜𝑢𝑟𝑠 𝑢𝑠𝑒𝑑

 Multifactor productivity: indicates the ratio of goods and services


produced (outputs) to many or all resources (inputs), it is a
broader view of productivity, and also known as total factor
productivity.

 𝑀𝑢𝑙𝑡𝑖𝑓𝑎𝑐𝑡𝑜𝑟 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 =

𝑜𝑢𝑡𝑝𝑢𝑡
𝑙𝑎𝑏𝑜𝑟 + 𝑚𝑎𝑡𝑒𝑟𝑖𝑎𝑙 + 𝑒𝑛𝑒𝑟𝑔𝑦 + 𝑐𝑎𝑝𝑖𝑡𝑎𝑙 + 𝑚𝑖𝑠𝑐𝑒𝑙𝑙𝑎𝑛𝑒𝑜𝑢𝑠

𝑛𝑒𝑤−𝑜𝑙𝑑
 To calculate the difference=
𝑜𝑙𝑑

 Both the labor (single-factor) and multifactor productivity


measures reflect productivity, however, the multifactor measure
provides a better picture of the increase because it includes all
the costs connected with the increase in output.

 there are three measuring problems that we face:


1) Quality may change while the quantity of inputs and outputs remains
constant.
2) External elements may cause an increase or a decrease in
productivity for which the system under study may not be directly
responsible.
3) Precise units of measure may be lacking.
 Productivity measurement is particularly difficult in the service
sector, where the end product can be hard to define. (services are
hard to measure).
 Productivity variable: the three factors critical to productivity
improvement:
1)Labor. 2)Capital. 3)the art and science of management.
 Management is the most important.
 Labor has three key variables for improved labor productivity:
1)basic education appropriate for an effective labor force.
2)diet of the labor force.
3)social overhead that makes labor available, such as transportation
and sanitation.
 Capital: human beings are tool-using animals; capital investment
provides those tools.
 Management: management is a factor of production and an
economic resource, management is responsible for ensuring that
labor and capital are effectively used to increase productivity.
 Knowledge society: a society in which much of the labor force has
migrated from manual work to work based on knowledge.
 The service sector provides a special challenge to the accurate
measurement of productivity and productivity improvement.
 Productivity of the service sector has proven difficult to improve
because service-sector work is:
1)Typically labor intensive.
2)frequently focused on unique individual attributes or desires.
3)often an intellectual task performed by professionals.
4)often difficult to mechanize and automate.
5)often difficult to evaluate for quality.
 Current challenges in operations management:
1)Globalization.
2)Supply-chain partnering.
3)Sustainability.
4)Rapid product development.
5)Mass customization.
6)Lean operations.
 One of the reasons OM is such an exciting discipline is that an
operations manager is confronted with ever-changing issues,
from technology, to global supply chains, to sustainability.
 Stakeholders: those with a vested interest in an organization,
including customers, distributors, suppliers, owners, lenders,
employees, and community members.

Side notes:
-Pay attention to “per labor-hour”/ “per dollar” while solving.
-What is the difference between “Labor intensive” and “Capital
intensive”?
A)Labor intensive: relies on labor (Human).
B)Capital intensive: relies on capital (Machines).

-How to establish partnerships?


A)Trust B)Shared Vision c)Mutual Beneficial Relationship

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